Generally, cash out is not allowed. However, additional funds may be allowed to cover costs such as repairs and improvements along with transaction and closing costs. In addition, outstanding debt incurred which stems from capital improvements to the property could be allowed (subject to HUD approval).

The FHA requires cash at closing for costs not covered by the updated mortgage amount.

HUD Application Fee

0.30% of the mortgage total is paid when submitting the application. Half of this is mortgageable while the other half is credited back at closing

Additional Fees, Deposits, & Expenses

In addition to the HUD Application Fee, borrowers may also need to pay other fees related to the loan, including lender fees. These fees may be included in the loan amount.

Rate Lock Deposit - A deposit of up to 1.0% of loan amount secures a rate lock. This deposit is refunded when a GNMA investor accepts the loan.

Inspection Fees - HUD does not require inspection fees.

Finance Fee - Up to 2.0% for loans over $2 million (due at closing).

Placement Fee - Up to $40,000 for loans less than $2 million (due at closing).

Third Party Reports

In general, HUD requires a PCNA (Project Capital Needs Assessment) to apply for Section 223(a)(7) financing. On top of that, A PCNA is required every 10 years after the initial application. HUD does not require new appraisals, market studies, or environmental assessments.

Replacement Reserves

Initial reserves and monthly deposits are required based on the project’s needs.

HUD 223(a)(7) refinancing usually takes 60 days. However, it could take as long as 3 months. The actual time to process a loan depends on the specific transaction. For instance,

the firm application is typically submitted to HUD within 30 days. For multifamily properties, HUD has an estimated 45-day review period. For healthcare, it is an estimated 60 days. After HUD issues the firm commitment and rate lock, most FHA 223(a)(7) refinancing loans close in an average of 45 days.

Repair Amount

Funds for minor repairs and improvements can be included in the refinancing cost. HUD allows up to $1,500 per unit.

Yes, HUD 223(a)(7) loans typically allow prepayment. However, there is often a 0-2 year lockout period, during which the loan cannot be prepaid at all, followed by an 8-10% declining prepayment penalty. This means that the prepayment penalty will decline by 1% each year, starting after the lockout period ends.

Just like other HUD multifamily loans, HUD 223(a)(7) loans are fully assumable subject to FHA approval and a fee of 0.05% of the original FHA-insured loan amount. The fact that these loans are assumable can be a significant benefit to borrowers; especially those who want to sell their property after a few years. This is because having a new borrower assume the loan prevents the previous borrower from having to pay a prepayment penalty.

In general, the HUD 223(a)(7) loan program does not allow for cash out refinancing. Instead, the 223(a)(7) loan can only finance certain eligible costs, including 100% of the property’s existing mortgage, third-party reports, minor/moderate property repairs, replacement reserves, prepayment penalties (if the borrower is paying off their HUD multifamily loan early), and certain other costs. Borrowers who wish to get cash out from a multifamily property may wish to look towards other types of financing, such as a CMBS loan.

HUD 223(a)(7) loans require a HUD application fee (0.3% of the loan amount) which is due at application. Half of this is refunded after closing. Other fees and costs for the HUD 223(a)(7) program are usually capped at 2.0%.

Without a doubt, the HUD 223(a)(7) loan process is faster and has fewer hoops than other FHA/HUD products. The streamlined, affordable process does not require new third-party reports like appraisals, market studies, or environmental reports. In fact, most 223(a)(7) refinances only require a project capital needs assessment (PCNA).

The HUD 223(a)(7) refinance loan program can reduce interest rates, increase amortization, and improve cash flow while reducing the cost of debt service. It can even absorb prepayment penalty costs. On top of all that, it is one of the fastest, easiest, and most affordable multifamily or healthcare loans that you can get.